It's Sunday evening and markets are open in Asia, futures are open too. Dow futures are hovering around -275 points (counting fair value) and has been holding and is now at 9:15 ET well off its lows. If markets dip tomorrow again, smart money buys.
No observer, no analyst, not even S&P has yet been able to explain a true fundamental economic reason that the U.S. - and not France or Germany or Finland per se... all AAA - deserves a credit downgrade over its AAA former peers. There is plenty of talk, however, of why we don't need "credit" rating agencies at all, particularly with records such as S&P and others. If these companies were paid on accuracy, they would have fallen along with Lehman. Read the report (see prior post for link). It is nakedly political (though not partisan) and not economic. It describes nothing that political analysts and prognosticators have been and are still saying. The short-term, medium-term, and long-term trends, including the political, have not changed. The debt debate was not the first time our government has played brinksmanship.
The world is selling off. Why? Because as George Soros points to again and again in his finance books, such as The Alchemy of Finance, the markets are a psychological game of expectations, namely game theory. It's not about the fundamentals now. It's about "what do I think that other people think?" Moreso, what do I think that other people think that other people think? And so on. With that, basic human psychology especially with greed and fear, you get ridiculous market fluctuations based nothing on fundamentals but almost entirely on the psychology of game theory. And that's not a way for savvy investors to play the market.
Answer? Pay attention to the fundamentals, corporate profits and balance sheets, comparative national economics, and solid apolitical indicators. The fundamentals investor will be buying these dips.
